1 National Income and Product Accounts

Size: px
Start display at page:

Download "1 National Income and Product Accounts"

Transcription

1 Espen Henriksen econ249 UCSB 1 National Income and Product Accounts 11 Gross Domestic Product (GDP) Can be measured in three different but equivalent ways: 1 Production Approach 2 Expenditure Approach 3 Income Approach 111 Computing GDP through Production Calculate nominal GDP by adding value of production of all industries: production surveys Problem of double-counting: ie Mittal Steel and Volvo Value Added = Revenue Intermediate Goods Nominal GDP = Sum of Value Added of all Industries 112 Computing GDP through Expenditure Y = Nominal GDP C = Consumption I = (Gross Private) Investment G = Government Purchases X = Exports M = Imports Consumption (C) Durable Goods: 3 years rule Nondurable Goods Services Y C + I + G + (X M)

2 Gross Private Investment (I) Nonresidential Fixed Investment Residential Fixed Investment Inventory Investment Stocks vs Flows Government Purchases (G) Sum of government regional and municipal purchases of goods and services Certain government outlays do not belong to government spending: transfers (social security etc) Government Investment Investment and the Capital Stock Capital Stock: total amount of physical capital in the economy Depreciation: period the part of the capital stock that wears out during the Capital Stock at end of this period = Capital Stock at end of last period + Gross Investment in this period Depreciation in this period Net Investment = Gross Investment Depreciation = Capital Stock end this period Capital Stock end of last period Inventory Investment Why included in GDP? Inventory Investment = Stock of Inventories at end of this year Stock of Inventories at the end of last year Final Sales = Nominal GDP Inventory Investment Exports (E) and Imports (M) Exports: deliveries of US goods and services to other countries Imports: deliveries of goods and services from other countries to the US Trade Balance = Exports Imports Trade Deficit: if trade balance negative Trade Surplus: if trade balance positive 2

3 113 Distribution of National Income 1 Employees Compensation: wages salaries and fringe benefits 2 Proprietors Income: income of non-corporate business 3 Rental Income: income that landlords receive from renting including imputed rent less expenses on the house such as depreciation 4 Corporate Profits: income of corporations after payments to their workers and creditors 5 Net interest: interests paid by domestic businesses plus interest earned from foreigners Labor and Capital Share Labor share: the fraction of national income that goes to labor income Capital share: the fraction of national income that goes to capital income Labor Share = Capital Share = Proprietor s Income? Labor Income National Income Capital Income National Income 2 Calibrating a model of the national accounts 21 Parametric class The first step in actually calibrating any framework is to restrict the parametric classes of the model economy If we are primarily interested in questions concerning developed economies we restrict our attention to economies that display balanced growth In balanced growth consumption investment and capital all grow at the same rate while hours worked stay almost constant The basic observations about economic growth suggest that capital and labor shares of output have been approximately constant over time even while the relative prices of these inputs have changed A Cobb-Douglas production function has the form F (K t ) = K α t N t We know from Euler s homogeneous function theorem that since the Cobb- Douglas production function is first-order homogeneous (which implies constant returns to scale) we have F (K t ) = K t F (K t ) K t + F (K t ) 3

4 If we assume perfect competition (for all goods in all markets) then each factor of production (capital (K t ) and labor ( )) are paid the value of their marginal products ( F (K t ) / K t and F (K t ) / ) denoted r t and w t respectively With a first-order homogeneous function we have r t K t + w t = F (K t ) (1) ie the value of the output is split between the two factors of production: capital and labor In particular with the Cobb-Douglas specification r t = F (K t ) K t From Equation (1) hence = α Kα t Nt and w t = F (K t ) K t = (1 α) Kα t Nt F (K t ) = r t K t + w t = α F (K t ) K t + (1 α) F (K t ) K t α = r t K t F (K t ) = 1 w t F (K t ) In words with the Cobb-Douglas specification capital s and labor s shares of output are given by the constant parameter α Since we want our model to match the observation about economic growth that capital and labor shares of output have been approximately constant over time even while the relative prices of these inputs have changed the Cobb- Douglas specification is a natural choice In summary we have Product approach to output: Y t = F (K t ) = K α t N t (2) Expenditure approach to output: Y t = C t + I t + G t + (X t M t ) (3) Income approach to output: Y t = r t K t + w t (4) Law of motion for capital: K t+1 = (1 )K t + I t (5) 22 Match the model to the measurement Aligning a theoretical framework with measurements is a two-way street The general procedure is to set parameter values so that the behavior of the model economy matches features of the measured data in as many dimensions as there are structural parameters We observe over time that certain ratios in actual economies are more or less constant This suggests that parameters are set to match statistical moments (mean standard deviation ) of ratios associated with long-run growth 4

5 and In particular as we have shown r t = F (K t ) K t = α Kα t Nt w t = F (K t ) K t Y t = r t K t + w t = α Kα t Nt K t α = r tk t Y t = (1 α) Kα t Nt K t + (1 α) Kα t Nt = 1 w t Y t In words the parameter is equal to capital s share of national income We therefore set the value of the parameter α in our model economy to match the first moment (the mean) of the time series for capital s share of national income Along a de-trended balanced growth path capital is constant From the law of motion for capital it follows that or K = I = I K The investment-to-capital ratio is rarely reported but two often-reported ratios are the investment-to-output ratio and the capital-to-output ratio We therefore set the value of the parameter in our model economy to match the product of the first moments (the means) of the investment-to-output ratio and the capital-to-output ratio = I ( ) 1 K Y Y 3 Simplifying the model to study the dynamics We will make two simplifying assumptions to the model: 1 Closed economy: No trade with other countries hence for all times t X t = M t = 0 2 Behavior: Individuals in the economy save a given fraction σ of their income Since it is a closed economy investment is equal to savings hence We will soon relax this assumption I t = σ (r t K t + w t ) = σy t 5

6 In addition we abstract for the public sector and let C t denote both private and public consumption and I t both private and public investments We have Product approach to output: Y t = F (K t ) (6) Expenditure approach to output: Y t = C t + I t (7) Income approach to output: Y t = r t K t + w t (8) Law of motion for capital: K t+1 = (1 )K t + I t (9) Behavioral assumption: I t = S t = σy t (10) 31 Study the model analytically In order to simplify the analytical study of the economy we rewrite the model in per-capita terms: Product approach to output: y t = f (k t ) F (k t 1) (11) Expenditure approach to output: y t = c t + i t (12) Income approach to output: y t = r t k t + w t (13) Law of motion for capital: k t+1 = (1 )k t + i t (14) Behavioral assumption: i t = s t = σy t (15) where all lower-case letters denote per-capita variables As most of you will recognize now this is the model that you probably referred to as the Solow model in your undergraduate macro textbook A key insight is that the Solow model is essentially the study of the mechanics of the national accounts for a closed economy and given a very strong behavioral assumption For every feasible savings rate ie σ [0 1] the model has a unique steady state Let variables without time subscript denote steady state values Combining the law of motion for capital with the behavioral assumption we have k = σy Combining this with the production approach to output y = k α and solving for k as a function of the structural parameters we have k = ) 1 6

7 The steady-state values of the other endogenous variables expressed as functions of the structural parameters: y = i = σ ) α ) α c = (1 σ) ) α r = α σ

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics

Big Concepts. Measuring U.S. GDP. The Expenditure Approach. Economics 202 Principles Of Macroeconomics Lecture 6 Economics 202 Principles Of Macroeconomics Measuring GDP Professor Yamin Ahmad Real GDP and the Price Level Economic Growth and Welfare Big Concepts Ways to Measure GDP Expenditure Approach Income

More information

Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP)

Economic Output. Economic Output. GDP: Definition. GDP: Definition. GDP: Definition. GDP: Definition. Agenda. Gross Domestic Product (GDP) Economic Output Economic Output Agenda Defining GDP Measuring Real GDP The Expenditure Side The Income Side Economic Output Gross Domestic Product (GDP) The official measure of a country s economic output.

More information

TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class.

TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class. TRADE AND INVESTMENT IN THE NATIONAL ACCOUNTS This text accompanies the material covered in class. 1 Definition of some core variables Imports (flow): Q t Exports (flow): X t Net exports (or Trade balance)

More information

Chapter 11: Activity

Chapter 11: Activity Economics for Managers by Paul Farnham Chapter 11: Measuring Macroeconomic Activity 11.1 Measuring Gross Domestic Product (GDP) GDP: the market value of all currently yproduced final goods and services

More information

MEASURING GDP AND ECONOMIC GROWTH CHAPTER

MEASURING GDP AND ECONOMIC GROWTH CHAPTER MEASURING GDP AND ECONOMIC GROWTH CHAPTER Objectives After studying this chapter, you will able to Define GDP and use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed.

Name: Date: 3. Variables that a model tries to explain are called: A. endogenous. B. exogenous. C. market clearing. D. fixed. Name: Date: 1 A measure of how fast prices are rising is called the: A growth rate of real GDP B inflation rate C unemployment rate D market-clearing rate 2 Compared with a recession, real GDP during a

More information

The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010

The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010 The National Accounts and the Public Sector by Casey B. Mulligan Fall 2010 Factors of production help interpret the national accounts. The factors are broadly classified as labor or (real) capital. The

More information

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

More information

Measuring National Output and National Income

Measuring National Output and National Income Measuring National Output and National Income 6 C H A P T E R O U T L I N E Gross Domestic Product Final Goods and Services Exclusion of Used Goods and Paper Transactions Exclusion of Output Produced Abroad

More information

VI. Real Business Cycles Models

VI. Real Business Cycles Models VI. Real Business Cycles Models Introduction Business cycle research studies the causes and consequences of the recurrent expansions and contractions in aggregate economic activity that occur in most industrialized

More information

Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1

Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1 Econ 303: Intermediate Macroeconomics I Dr. Sauer Sample Questions for Exam #1 1. Variables that a model tries to explain are called: A) endogenous. B) exogenous. C) market clearing. D) fixed. 2. A measure

More information

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH

CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH CHAPTER 5: MEASURING GDP AND ECONOMIC GROWTH Learning Goals for this Chapter: To know what we mean by GDP and to use the circular flow model to explain why GDP equals aggregate expenditure and aggregate

More information

ECONOMIC GROWTH* Chapter. Key Concepts

ECONOMIC GROWTH* Chapter. Key Concepts Chapter 5 MEASURING GDP AND ECONOMIC GROWTH* Key Concepts Gross Domestic Product Gross domestic product, GDP, is the market value of all the final goods and services produced within in a country in a given

More information

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption.

Exam 1 Review. 3. A severe recession is called a(n): A) depression. B) deflation. C) exogenous event. D) market-clearing assumption. Exam 1 Review 1. Macroeconomics does not try to answer the question of: A) why do some countries experience rapid growth. B) what is the rate of return on education. C) why do some countries have high

More information

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product

Why expenditure = income. The Circular Flow. Circular flow. Gross Domestic Product Gross Domestic Product Why expenditure = income Two definitions: 1. Total expenditure on final goods and services 2. Total income earned by factors of production In In every transaction, the the buyer

More information

The Data of Macroeconomics

The Data of Macroeconomics CHAPTER 2 The Data of Macroeconomics Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN:... the meaning and measurement of the most important

More information

Chapter 1 Lecture Notes: Economics for MBAs and Masters of Finance

Chapter 1 Lecture Notes: Economics for MBAs and Masters of Finance Chapter 1 Lecture Notes: Economics for MBAs and Masters of Finance Morris A. Davis Cambridge University Press stands for Gross Domestic Product. Nominal is the dollar value of all goods and services that

More information

Measuring the Aggregate Economy

Measuring the Aggregate Economy CHAPTER 25 Measuring the Aggregate Economy The government is very keen on amassing statistics... They collect them, add them, raise them to the n th power, take the cube root and prepare wonderful diagrams.

More information

UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS

UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS Exam: ECON4310 Intertemporal macroeconomics Date of exam: Thursday, November 27, 2008 Grades are given: December 19, 2008 Time for exam: 09:00 a.m. 12:00 noon

More information

UNIT I NATIONAL INCOME AND MACROECONOMICS

UNIT I NATIONAL INCOME AND MACROECONOMICS UNIT I NATIONAL INCOME AND MACROECONOMICS 1 National Income National Income is defined as the sum total of all the goods and services produced in a country, in a particular period of time. Normally this

More information

Measuring Economic Performance. Chapter 2

Measuring Economic Performance. Chapter 2 Measuring Economic Performance Chapter 2 Outline Gross Domestic Product Measuring GDP Through Spending Measuring GDP Through Production Measuring GDP Through Income Saving and Investment Transactions with

More information

Unit 4: Measuring GDP and Prices

Unit 4: Measuring GDP and Prices Unit 4: Measuring GDP and Prices ECO 120 Global Macroeconomics 1 1.1 Reading Reading Module 10 - pages 106-110 Module 11 1.2 Goals Goals Specific Goals: Understand how to measure a country s output. Learn

More information

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING

CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING CHAPTER 20 GROSS DOMESTIC PRODUCT ACCOUNTING Chapter in a Nutshell Gross domestic product was introduced in the previous chapter as a basic measure of macroeconomic performance. This chapter identifies

More information

Chapter 5: National Income Accounting John Petroff

Chapter 5: National Income Accounting John Petroff Chapter 5: National Income Accounting John Petroff INTRODUCTION The purpose of this topic is to study how the gross national product is measuring the economic activity of a nation. The concept is defined

More information

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100)

ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He. Homework 1 Suggested Answer (Total points: 100) ECON300, Spring 2012 Intermediate Macroeconomics Professor: Hui He Homework 1 Suggested Answer (Total points: 100) Understanding the growth rate and how to measure it Problem no. 1 on page 35. (10 points)

More information

National Income Accounting

National Income Accounting Chapter 2 The Measurement and Structure of the Canadian Economy Economics 282 University of Alberta National Income Accounting The national income accounts is an accounting framework used in measuring

More information

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID:

ECO 2302 Principle of Macroeconomics TEST I. Name: R: ID: ECO 2302 Principle of Macroeconomics TEST I Ibrahim Ozayturk Name: R: ID: MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The can change the quantity

More information

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX.

31. Gross Domestic Product equals a. Y = C + I G + NX. b. Y = C I + G + NX. c. Y = C + I + G + NX. GDP Review Questions 13. Gross Domestic Product measures the a. quantity of the goods and services produced in a given year, listed item by item, within a country. b. income of the business sector within

More information

Chapter 3 A Classical Economic Model

Chapter 3 A Classical Economic Model Chapter 3 A Classical Economic Model what determines the economy s total output/income how the prices of the factors of production are determined how total income is distributed what determines the demand

More information

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income

The Circular Flow 1/15/2013. Gross Domestic Product: Expenditure and Income IN THIS CHAPTER, YOU WILL LEARN: ECON 3010 Intermediate Macroeconomics Chapter 2 The Data of Macroeconomics the meaning and measurement of the most important macroeconomic statistics: gross domestic product

More information

Exam 1 Review. Page 1

Exam 1 Review. Page 1 Exam 1 Review 1. When a firm sells a product out of inventory, GDP: A) increases. B) decreases. C) is not changed. D) increases or decreases, depending on the year the product was produced. 2. An economy's

More information

Chapter 2. The Measurement and Structure of the National Economy Pearson Addison-Wesley. All rights reserved

Chapter 2. The Measurement and Structure of the National Economy Pearson Addison-Wesley. All rights reserved Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Gross Domestic Product Saving and Wealth

More information

Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting

Chapter Outline. Chapter 2. National Income Accounting. National Income Accounting Chapter 2 The Measurement and Structure of the National Economy Chapter Outline National Income Accounting: The Measurement of Production, Income, and Expenditure Real GDP, Price Indexes, and Inflation

More information

ECON 3010 Intermediate Macroeconomics Exam #1

ECON 3010 Intermediate Macroeconomics Exam #1 ECON 3010 Intermediate Macroeconomics Exam #1 Multiple Choice Questions. (25 points; 2.5 pts each) #1. In any closed macroeconomy, saving equals a. consumption. b. investment. c. government spending. d.

More information

Towards a Structuralist Interpretation of Saving, Investment and Current Account in Turkey

Towards a Structuralist Interpretation of Saving, Investment and Current Account in Turkey Towards a Structuralist Interpretation of Saving, Investment and Current Account in Turkey MURAT ÜNGÖR Central Bank of the Republic of Turkey http://www.muratungor.com/ April 2012 We live in the age of

More information

Long Run Economic Growth Agenda. Long-run Economic Growth. Long-run Growth Model. Long-run Economic Growth. Determinants of Long-run Growth

Long Run Economic Growth Agenda. Long-run Economic Growth. Long-run Growth Model. Long-run Economic Growth. Determinants of Long-run Growth Long Run Economic Growth Agenda Long-run economic growth. Determinants of long-run growth. Production functions. Long-run Economic Growth Output is measured by real GDP per capita. This measures our (material)

More information

Solution to Unsolved Numericals in the Textbook

Solution to Unsolved Numericals in the Textbook Solution to Unsolved Numericals in the Textbook National Income and Related Aggregates. Calculate Gross National Disposable Income from the following data: (i) National income 2,000 (ii) Net factor income

More information

Chapter 4. Specific Factors and Income Distribution

Chapter 4. Specific Factors and Income Distribution Chapter 4 Specific Factors and Income Distribution Introduction So far we learned that countries are overall better off under free trade. If trade is so good for the economy, why is there such opposition?

More information

CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM)

CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) 1 CHAPTER 11. AN OVEVIEW OF THE BANK OF ENGLAND QUARTERLY MODEL OF THE (BEQM) This model is the main tool in the suite of models employed by the staff and the Monetary Policy Committee (MPC) in the construction

More information

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added

Chapter 20. The Measurement of National Income. In this chapter you will learn to. National Output and Value Added Chapter 20 The Measurement of National Income In this chapter you will learn to 1. Use the concept of value added to solve the problem of double counting when measuring national income. 2. Describe the

More information

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market

= C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market Intermediate Macroeconomics Lecture 4: Introduction to the Goods Market Review of the Aggregate Expenditures model and the Keynesian Cross ECON 302 Professor Yamin Ahmad Components of Aggregate Demand

More information

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

7. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

More information

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY

NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY NATIONAL INCOME AND PRODUCT ACCOUNTING MEASURING THE MACROECONOMY 1. NIPA: GNP and GDP 2. Saving and Wealth 3. Prices and Inflation 4. Unemployment 5. Problems with Measuring the Macroeconomy There are

More information

k = sf(k) (δ + n + g)k = 0. sy (δ + n + g)y 2 = 0. Solving this, we find the steady-state value of y:

k = sf(k) (δ + n + g)k = 0. sy (δ + n + g)y 2 = 0. Solving this, we find the steady-state value of y: CHAPTER 8 Economic Growth II Questions for Review 1. In the Solow model, we find that only technological progress can affect the steady-state rate of growth in income per worker. Growth in the capital

More information

Measuring the Economy

Measuring the Economy Measuring the Economy A Primer on GDP and the National Income and Product Accounts Concepts Framework Measures Interactive Access October 2014 Measuring the Economy A Primer on GDP and the National Income

More information

Real Business Cycle Models

Real Business Cycle Models Real Business Cycle Models Lecture 2 Nicola Viegi April 2015 Basic RBC Model Claim: Stochastic General Equlibrium Model Is Enough to Explain The Business cycle Behaviour of the Economy Money is of little

More information

Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter:

Macroeconomia Capitolo 7. Seguire l andamento della macroeconomia. What you will learn in this chapter: Macroeconomia Capitolo 7 Seguire l andamento della macroeconomia PowerPoint Slides by Can Erbil 2006 Worth Publishers, all rights reserved What you will learn in this chapter: How economists use aggregate

More information

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet

This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Go to the special codes section on your score sheet Instructions: This is the on-line Multiple Choice Quiz for Chapter 4. Please do the following. Step I - Go to the special codes section on your score sheet Write your section number (1, or 4, or 5) under

More information

MA Macroeconomics 10. Growth Accounting

MA Macroeconomics 10. Growth Accounting MA Macroeconomics 10. Growth Accounting Karl Whelan School of Economics, UCD Autumn 2014 Karl Whelan (UCD) Growth Accounting Autumn 2014 1 / 20 Growth Accounting The final part of this course will focus

More information

Preparation course MSc Business & Econonomics- Macroeconomics: Introduction & Concepts

Preparation course MSc Business & Econonomics- Macroeconomics: Introduction & Concepts Preparation course MSc Business & Econonomics- Macroeconomics: Introduction & Concepts Tom-Reiel Heggedal Economics Department 2014 TRH (Institute) Intro&Concepts 2014 1 / 20 General Information Me: Tom-Reiel

More information

Assignment 3. Chapter 7 Chapter 8. Last Name. First Name. Page 1

Assignment 3. Chapter 7 Chapter 8. Last Name. First Name. Page 1 Assignment 3 Last Name First Name Chapter 7 Chapter 8 1 a b c d 1 a b c d 2 a b c d 2 a b c d 3 a b c d 3 a b c d 4 a b c d 4 a b c d 5 a b c d 5 a b c d 6 a b c d 6 a b c d 7 a b c d 7 a b c d 8 a b c

More information

Measuring a Nation s Income

Measuring a Nation s Income Measuring a Nation s Income I. Review of the Definitions of Microeconomics and Macroeconomics A. Definition of microeconomics: the study of how households and firms make decisions and how they interact

More information

National Income Accounting

National Income Accounting : A set of rules and definitions for measuring economic activity in the aggregate economy (The economy as a whole.) As we noted earlier, the main measure of aggregate economic activity are GDP and GNP

More information

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average

6. Real GDP means the value of goods and services is measured in prices. A) current B) actual C) constant D) average Name: Date: 1. Assume that total output consists of 4 apples and 6 oranges and that apples cost $1 each and oranges cost $0.50 each. In this case, the value of GDP is: A) 10 pieces of fruit. B) $7. C)

More information

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income

Name: Date: 3. Which of the following is a flow variable? A) wealth B) the number unemployed C) government debt D) income Name: Date: 1. GDP is all of the following except the total: A) expenditure of everyone in the economy. B) income of everyone in the economy. C) expenditure on the economy's output of goods and services.

More information

Economic Growth. (c) Copyright 1999 by Douglas H. Joines 1

Economic Growth. (c) Copyright 1999 by Douglas H. Joines 1 Economic Growth (c) Copyright 1999 by Douglas H. Joines 1 Module Objectives Know what determines the growth rates of aggregate and per capita GDP Distinguish factors that affect the economy s growth rate

More information

ECON20310 LECTURE SYNOPSIS REAL BUSINESS CYCLE

ECON20310 LECTURE SYNOPSIS REAL BUSINESS CYCLE ECON20310 LECTURE SYNOPSIS REAL BUSINESS CYCLE YUAN TIAN This synopsis is designed merely for keep a record of the materials covered in lectures. Please refer to your own lecture notes for all proofs.

More information

11.1 Estimating Gross Domestic Product (GDP) Objectives

11.1 Estimating Gross Domestic Product (GDP) Objectives 11.1 Estimating Gross Domestic Product (GDP) Objectives Describe what the gross domestic product measures. Learn two ways to calculate the gross domestic product, and explain why they are equivalent. 11.1

More information

The Golden Rule. Where investment I is equal to the savings rate s times total production Y: So consumption per worker C/L is equal to:

The Golden Rule. Where investment I is equal to the savings rate s times total production Y: So consumption per worker C/L is equal to: The Golden Rule Choosing a National Savings Rate What can we say about economic policy and long-run growth? To keep matters simple, let us assume that the government can by proper fiscal and monetary policies

More information

Week 4 Tutorial Question Solutions (Ch2 & 3)

Week 4 Tutorial Question Solutions (Ch2 & 3) Chapter 2: Q1: Macroeconomics P.52 Numerical Problems #3 part (a) Q2: Macroeconomics P.52 Numerical Problems #5 Chapter 3: Q3: Macroeconomics P.101 Numerical Problems #5 Q4: Macroeconomics P102 Analytical

More information

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com

National Income Accounting. Courtesy : www. carlprosper4nugs.yolasite.com National Income Accounting Courtesy : www. Introduction to Economy of Ghana Measuring the Economy - National Income Accounting Structure of the Economy and Sectoral Outlook Economic History of Ghana: preindependence,

More information

Current Accounts in Open Economies Obstfeld and Rogoff, Chapter 2

Current Accounts in Open Economies Obstfeld and Rogoff, Chapter 2 Current Accounts in Open Economies Obstfeld and Rogoff, Chapter 2 1 Consumption with many periods 1.1 Finite horizon of T Optimization problem maximize U t = u (c t ) + β (c t+1 ) + β 2 u (c t+2 ) +...

More information

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000. Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

More information

Great Depressions from a Neoclassical Perspective. Advanced Macroeconomic Theory

Great Depressions from a Neoclassical Perspective. Advanced Macroeconomic Theory Great Depressions from a Neoclassical Perspective Advanced Macroeconomic Theory 1 Review of Last Class Model with indivisible labor, either working for xed hours or not. allow social planner to choose

More information

Lecture 6: The neo-classical growth model

Lecture 6: The neo-classical growth model Lecture 6: The neo-classical growth model February 23, 2009 1 The main sources of divergence in GDP per capita across countries A first source of difference in GDP per capita is the stock of physical capital.

More information

Generic Analysis of Endogenous Growth Models

Generic Analysis of Endogenous Growth Models c December 24, 2016, Christopher D. Carroll Endogenous Generic Analysis of Endogenous Growth Models The neoclassical theory of economic growth, as formulated by Solow (1956), and Cass (1965)-Koopmans (1965),

More information

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas

More information

Practice Problems on the Capital Market

Practice Problems on the Capital Market Practice Problems on the Capital Market 1- Define marginal product of capital (i.e., MPK). How can the MPK be shown graphically? The marginal product of capital (MPK) is the output produced per unit of

More information

DUAL INCOME TAXES: A NORDIC TAX SYSTEM

DUAL INCOME TAXES: A NORDIC TAX SYSTEM DUAL INCOME TAXES: A NORDIC TAX SYSTEM Peter Birch SørensenS University of Copenhagen Presentation at the conference on New Zealand Tax Reform Where to Next? Wellington, February 11-13,, 2009 AGENDA What

More information

The RBC methodology also comes down to two principles:

The RBC methodology also comes down to two principles: Chapter 5 Real business cycles 5.1 Real business cycles The most well known paper in the Real Business Cycles (RBC) literature is Kydland and Prescott (1982). That paper introduces both a specific theory

More information

Macroeconomic Effects of Financial Shocks Online Appendix

Macroeconomic Effects of Financial Shocks Online Appendix Macroeconomic Effects of Financial Shocks Online Appendix By Urban Jermann and Vincenzo Quadrini Data sources Financial data is from the Flow of Funds Accounts of the Federal Reserve Board. We report the

More information

A. GDP, Economic Growth, and Business Cycles

A. GDP, Economic Growth, and Business Cycles ECON 3023 Hany Fahmy FAll, 2009 Lecture Note: Introduction and Basic Concepts A. GDP, Economic Growth, and Business Cycles A.1. Gross Domestic Product (GDP) de nition and measurement The Gross Domestic

More information

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly

Economics 212 Principles of Macroeconomics Study Guide. David L. Kelly Economics 212 Principles of Macroeconomics Study Guide David L. Kelly Department of Economics University of Miami Box 248126 Coral Gables, FL 33134 dkelly@miami.edu First Version: Spring, 2006 Current

More information

Social Returns to investment and Rate of Return to Capital

Social Returns to investment and Rate of Return to Capital Social Returns to investment and Rate of Return to Capital October 27 th, 2010 Leonardo Garrido, PRMED Social Returns to Investments in G.D. G.D. overarching question what is constraining private investment

More information

Tracking the Macroeconomy

Tracking the Macroeconomy chapter 7(23) Tracking the Macroeconomy Chapter Objectives Students will learn in this chapter: How economists use aggregate measures to track the performance of the economy. What gross domestic product,

More information

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions:

Measuring a Nation s Income THE MEASUREMENT OF GROSS DOMESTIC PRODUCT. In this chapter, look for the answers to these questions: In this chapter, look for the answers to these questions: What is Gross Domestic Product (GDP)? 5 How is GDP related to a nation s total income and spending? What are the components of GDP? How is GDP

More information

ECON 101 Exam 2. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question.

ECON 101 Exam 2. Name: Class: Date: Multiple Choice Identify the choice that best completes the statement or answers the question. Name: Class: Date: ECON 101 Exam 2 Multiple Choice Identify the choice that best completes the statement or answers the question. 1. Al s Aluminum Company sells $1 million worth of aluminum to Shiny Foil

More information

Q UANTITATIVE E CONOMICS & S TATISTICS AUGUST 25, 2005. Virginia Taxes Paid by Manufacturers

Q UANTITATIVE E CONOMICS & S TATISTICS AUGUST 25, 2005. Virginia Taxes Paid by Manufacturers Q UANTITATIVE E CONOMICS & S TATISTICS AUGUST 25, 2005 Virginia Taxes Paid by Manufacturers $16 $14 $12 $10 $8 $6 $12.5 $12.2 $10.7 $10.8 $4 $2 $0 19992000200120022003 Introduction This study provides

More information

2. Real Business Cycle Theory (June 25, 2013)

2. Real Business Cycle Theory (June 25, 2013) Prof. Dr. Thomas Steger Advanced Macroeconomics II Lecture SS 13 2. Real Business Cycle Theory (June 25, 2013) Introduction Simplistic RBC Model Simple stochastic growth model Baseline RBC model Introduction

More information

The Theory of Investment

The Theory of Investment CHAPTER 17 Modified for ECON 2204 by Bob Murphy 2016 Worth Publishers, all rights reserved IN THIS CHAPTER, YOU WILL LEARN: leading theories to explain each type of investment why investment is negatively

More information

Output and Expenditure in the Short Run

Output and Expenditure in the Short Run Chapter 11 (23) Output and Expenditure in the Short Run Chapter Summary Chapter 10 examined the determinants of long-run economic growth. In the short run, however, the economy experiences fluctuations

More information

A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS

A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS A HOW-TO GUIDE: FINDING AND INTERPRETING GDP STATISTICS By Jim Stanford Canadian Centre for Policy Alternatives, 2008 Non-commercial use and reproduction, with appropriate citation, is authorized. This

More information

Chapter 20. The Measurement of National Income

Chapter 20. The Measurement of National Income Chapter 20 The Measurement of National Income National Output and Value Added -many production processes involve multiple stages, only some which are done within the same firm -this raises an important

More information

Economics Macroeconomic Theory

Economics Macroeconomic Theory Economics 202.04 Macroeconomic Theory Spring 2003 Mid-Term Exam, 27 February 2003 Please answer FIVE QUESTIONS FROM SECTION A and TWO QUESTIONS FROM SECTION B. SECTION A and B each carry 50% of the marks.

More information

Chapter 8. GDP : Measuring Total Production and Income

Chapter 8. GDP : Measuring Total Production and Income Chapter 8. GDP : Measuring Total Production and Income Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Related Economic Terms Macroeconomics:

More information

Introduction to Macroeconomics TOPIC 2: The Goods Market

Introduction to Macroeconomics TOPIC 2: The Goods Market TOPIC 2: The Goods Market Annaïg Morin CBS - Department of Economics August 2013 Goods market Road map: 1. Demand for goods 1.1. Components 1.1.1. Consumption 1.1.2. Investment 1.1.3. Government spending

More information

Secular Movements in U.S. Saving and Consumption

Secular Movements in U.S. Saving and Consumption Secular Movements in U.S. Saving and Consumption Kaiji Chen Ayşe İmrohoroğlu Selahattin İmrohoroğlu First Version October 2005 Abstract The U.S. national saving rate has been declining since the 1960s

More information

Inflation. Chapter 8. 8.1 Money Supply and Demand

Inflation. Chapter 8. 8.1 Money Supply and Demand Chapter 8 Inflation This chapter examines the causes and consequences of inflation. Sections 8.1 and 8.2 relate inflation to money supply and demand. Although the presentation differs somewhat from that

More information

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS

INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS INTRODUCTION TO MACROECONOMICS MIDTERM- SAMPLE QUESTIONS MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In May 2009, Ford Motor Company's sales

More information

INVESTMENT DECISIONS and PROFIT MAXIMIZATION

INVESTMENT DECISIONS and PROFIT MAXIMIZATION Lecture 6 Investment Decisions The Digital Economist Investment is the act of acquiring income-producing assets, known as physical capital, either as additions to existing assets or to replace assets that

More information

ECONS PASCO {ECON 152}

ECONS PASCO {ECON 152} ECONS PASCO {ECON 152} 1. Macroeconomics deals with a. the activities of individual units b. the behaviour of the electronics industry c. economic aggregates d. the behaviour of firms 2. The study of inflation

More information

The Real Business Cycle Model

The Real Business Cycle Model The Real Business Cycle Model Ester Faia Goethe University Frankfurt Nov 2015 Ester Faia (Goethe University Frankfurt) RBC Nov 2015 1 / 27 Introduction The RBC model explains the co-movements in the uctuations

More information

Lecture 14 More on Real Business Cycles. Noah Williams

Lecture 14 More on Real Business Cycles. Noah Williams Lecture 14 More on Real Business Cycles Noah Williams University of Wisconsin - Madison Economics 312 Optimality Conditions Euler equation under uncertainty: u C (C t, 1 N t) = βe t [u C (C t+1, 1 N t+1)

More information

Chapter 4 Measuring GDP and Economic Growth

Chapter 4 Measuring GDP and Economic Growth Chapter 4 Measuring GDP and Economic Growth 1 Gross Domestic Product 1) Gross domestic product is the total produced within a country in a given time period. A) market value of all final and intermediate

More information

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations

Chapter 24. What will you learn in this chapter? Valuing an economy. Measuring the Wealth of Nations Chapter 24 Measuring the Wealth of Nations 2014 by McGraw-Hill Education 1 What will you learn in this chapter? How to calculate gross domestic product (GDP). Why each component of GDP is important. What

More information

Markups and Firm-Level Export Status: Appendix

Markups and Firm-Level Export Status: Appendix Markups and Firm-Level Export Status: Appendix De Loecker Jan - Warzynski Frederic Princeton University, NBER and CEPR - Aarhus School of Business Forthcoming American Economic Review Abstract This is

More information

Lecture Recessions and Fiscal Policy

Lecture Recessions and Fiscal Policy Lecture 5-1 5. Recessions and Fiscal Policy A change in planned autonomous spending (A p ) will cause a change in equilibrium income. Is such a multiplier expansion or contraction desirable or not? Yes,

More information

Econ 202 Section 2 Final Exam

Econ 202 Section 2 Final Exam Douglas, Fall 2009 December 17, 2009 A: Special Code 0000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Final Exam 1. The present value

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Suvey of Macroeconomics, MBA 641 Fall 2006, Final Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Modern macroeconomics emerged from

More information